New Issue Brief: Impact Investments by U.S. Pension Funds

Impact Investing, InSight

AI3 report

By John Griffith, Tom Woelfel and Keith Fairey

Today, Enterprise Community Partners and Insight at Pacific Community Ventures, co-sponsors of the Accelerating Impact Investing Initiative (AI3), released a new issue brief on impact investments by U.S. pension funds. The brief highlights public and private pension funds that have pursued “economically targeted investments” (ETIs), a type of impact investment that seeks certain social goals alongside a market-rate financial return. It comes just weeks after the U.S. Department of Labor, which oversees the fiduciary rules for many U.S. pension funds, issued new regulatory guidance that clarifies the pursuit of ETIs is consistent with ERISA’s fiduciary obligations. It is expected this guidance will prompt pension funds to explore making more ETIs in the years to come.

The brief focuses on three ETIs in particular:

  • The New York City Retirement System’s (NYCRS) Public-Private Apartment Rehabilitation Program, which provides mortgages for the renovation or construction of affordable rental housing throughout the city;
  • The California Public Employees’ Retirement System’s (CalPERS) California Initiative, which invests in companies in underserved markets and communities in the state; and
  • The United Methodist Church’s Positive Social Lending Program, which promotes affordable housing and community development for disadvantaged communities across the country.

The brief also identifies another 13 state pension systems and 3 religiously-affiliated pension funds that have pursued impact investments to date.

Our research shows that, when pursued carefully, ETIs have the potential to unleash a significant amount of new private investment into low- and moderate-income communities while fulfilling the fund manager’s fiduciary duty to pension holders and beneficiaries. For example, we estimate that if just 2 percent of the assets in the country’s public pensions and 1 percent of the assets in private pensions were dedicated to ETIs, it would bring $250-300 billion in private capital to the impact investing marketplace.

The Accelerating Impact Investing Initiative (AI3) is a cross-sector coalition of investors, researchers, philanthropic organizations, practitioners and policy experts working to improve and expand the market for impact investments in the U.S. through public policy. In the coming year, the AI3 team will work to identify high-priority policy recommendations, build strong coalitions around those recommendations and begin to engage key policymakers to usher in meaningful reforms. One of the team’s top priorities for 2016 will be to work closely with pension fund managers, trustees, beneficiaries, asset managers and government regulators to further investigate ETIs, starting with the creation of a national catalogue of ETIs and in-depth case studies of investments that deliver social impact and appropriate risk-adjusted financial returns.

To read the full issue brief released today, download the PDF here.